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Burritos, Profits Tasty at Booming Chipotle (Update1)

Stocks in this article: CMG

(Adds information on restaurateur concept, share-price multiple.)

BOSTON ( TheStreet) -- Chipotle Mexican Grill's third-quarter earnings and revenue exceeded analysts' projections. Higher food costs were partially offset by an increase in restaurant sales.

Some highlights:

¿ Revenue rose 24% to $592 million, above estimates of $584 million.

¿ Diluted earnings per share was $1.90, ahead of estimates of $1.85.

¿ Food costs were 33.1% of sales, an increase of 250 basis points, driven by rising commodity costs, yet in line with what management had given as guidance for the quarter.

¿ Chipotle opened 32 new restaurants, including the new ShopHouse Southeast Asian Kitchen, bringing the total restaurant count to 1,163.

¿ Restaurant-level operating margins were 26.7%, a decrease of 100 basis points from a year earlier.

¿ The company expects low-double-digit same-store sales growth for 2011, and low-single-digit same-store sales growth for 2012.

¿ The company plans to open 155 to 165 restaurants in 2012.

¿ Food costs should improve in the fourth quarter based on lower costs for avocados, the main ingredient in guacamole. The company is looking for low- to mid-32% range.

You have to be impressed by Chipotle. The company outmaneuvered rising food costs, proving it's still one of the few fast-growth restaurant stocks still available. It's growing sales at a rapid pace even after hiking prices by 4.5%.

I'm also a big fan of management's focus on grooming employees to become team leaders of owned stores. The restaurateur concept, which UBS recently termed a "competitive advantage for the chain," takes the best-performing managers and asks them to help advise on other chains while continuing to manage their original restaurant.

Based on EPS expectations for 2012 of $8.65, the stock is priced at around 36 times earnings. It's certainly not inexpensive, but given management's somewhat aggressive expansion plan, this is a stock that should continue to thrive over the next few years.

With the stock up 3% after hours, investors like what they see. I expect Chipotle to continue to deliver and would be a buyer on any weakness in the shares.

Feel free to let me know your thoughts on Chipotle either here or on Twitter at @bostoncfa

Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser.

Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.

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